Cash management in a Depress Economic atmosphere

Asset - Cash management in a Depress Economic atmosphere

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In a growing economy, confidence led banks and businesses to merge on P&L's management and to ignore cash management. In the current economic climate, the emphasis has changed and cash management is the thing which holds sway. What does cash management mean? It is to off-load as much risk as possible. This implies that suppliers have to contribute their customers with enough funds to enable them to continue trading, which military confidence up and down the contribute chain.

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In the current climate it is not unusual to be under pressure from your suppliers to convert your prestige terms, or of good clients having difficulties in paying their bills. The usual response is to start juggling with cash, which inevitably end up in emergency management. This is not cash management, this is gambling with your company money! Cash management ensures that clubs are adequately positioned against problems in the contribute chain.

Jean-Bertrand de Lartigue, Ma Consulting International chief executive, says "liquidity is now a priority. You need to clearly demonstrate that you are in full control of your cash position by enhancing your working capital performance, to give safety in the long term to your contribute chain and your banks".

Cash is money that you can entrance categorically whether from the bank or within the business. It is not inventory, it is not accounts receivable, and it is not property. You need petty cash or money in the bank to pay suppliers, to pay the rent, and to pay your employees.

Many businesses think that profit growth means more cash. Not necessarily, profit is the amount of money you get if all your customers pay on time and if your payments are spread out evenly over the year. Unfortunately life is not that easy. Cash is what will make your company survive. Over time, your profit is of minuscule value if you do not have a sure net cash flow. You can only spend cash not profit.

Due to the down turn in the economy, many businesses are facing a cash crisis. If you are juggling with cash, now is the time to stop doing that and to start identifying the root cause or causes of the crisis. Frequently encountered causes include:

o Your sale angle are over optimistic
o Your strategic choices are pointing you in the wrong direction
o You have a good strategy but your performance of the strategy is poor
o Your operating costs are too high
o Your fixed costs are too high and are decreasing your flexibility
o Your resources are insufficient or in the wrong place
o You spent too much on unsuccessful R&D projects
o You are facing fierce competition
o Your debt burden is excessive
o Your Inventories and/or Receivables are too high
o You have too much money tied up in your asset portfolio
o You have inadequate financial controls

If any of the above is true to your company you should embark on a turnaround process.

The first thing that you need to do on profit of your company is to convert the management team. The existing management team have got you into this crisis, are not in a position to see the whole picture, and are not able to manage the company out of the crisis. This is a very difficult task and requires a lot of courage to admit failure and fire people you have known for a very long time. It is recommended that you should call in turnaround specialists, as they would have an independent view and would be able to make the tough decisions on your behalf.

Once you have a new team, whether for the long term or to get you through the current crisis, they will achieve a situation diagnosis to rate the prospects of survival. Assuming your company is worth turning around, you should take the most acceptable strategies for survival, and present them to the board, get their buy in, as well as the staff buy in. Then present the existing situation and your corrective strategies, as categorically as possible, to your creditors and banks to get their support. The characterize should include possible divestment of sure assets and businesses, a reformulation of your growth strategies, cost reductions and strategic acquisitions, to achieve sure cash flow as soon as possible by the elimination of departments, reducing staff, selling excess inventory, selling non core businesses...

When the emergency is over and you have returned to a sure cash flow situation, you have to implement the strategic plan, enhance processes in your lasting operations, adjust the goods mix and reposition products if necessary. The management team focus is now on achieving sustained growth and profitability. The changes are internalized; employees gain confidence in the company and emphasis is located on growing the restructured business, while maintaining a strong balance sheet.

In some cases the prospects of survival may be too risky to continue as an ongoing operation, and you should select the acceptable exit strategy depending on the emergency of the situation. It is strongly recommended in those cases that you should consult an insolvency practitioner to make sure that you are not trading illegally, and to analyse the varied options that are offered to you, from going into pre-pack or administration; to exit the shop by immediately liquidating or selling to someone else company; or to play the end-game, maximizing near-term cash flows at the price of shop position.

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